Monday, April 25, 2011

Office Depot, Inc. (NYSE: ODP): Q1 Earnings Preview 2011

Office Depot, Inc. (NYSE: ODP) is scheduled to release its first-quarter earnings before the opening bell on Tuesday, April , 2011. Analysts, on average, expect the company to report earnings of 2 cents a share on revenue of $2.98 billion. In the year ago period, the company reported earnings of 7 cents per share on revenue of $3.07 billion.

Office Depot, Inc., together with its subsidiaries, supplies a range of office products and services. Office Depot provides products and services to its customers through 1,600 worldwide retail stores, a dedicated sales force, top-rated catalogs.

In the preceding fourth quarter, the Boca Raton, Florida based company's net loss was $57.80 million, or 21 cents per share, compared to a loss of $76.71 million, or 28 cents per share, in the prior-year quarter. On an adjusted basis, the company earned 9 cents per share. Revenue declined 3% to $2.96 billion from $3.07 billion in the same quarter last year. Analysts, on average, had expected the company to report a loss of 3 cents per share on revenue of $2.97 billion. 

Recently, the company said that it will restate its fiscal year 2010 financial results to revise the accounting treatment regarding its original tax position after the Internal Revenue Service denied the company's claim to carry back certain tax losses to prior tax years under economic stimulus-based tax legislation enacted in 2009. The periods covered by the restatement are the fiscal year ended December 25, 2010 and the quarters ended June 26, 2010 and September 25, 2010. The company said it expects the restatement to reduce full-year 2010 tax benefits by about $80 million, change net earnings for 2010 from $33 million to a net loss of $46 million and increase the net loss attributable to common shareholders from $2 million or $0.01 per share to $82 million or $0.30 per share.

Additionally, the office supply chain said sales results for the first quarter are consistent with the outlook of down 3% year-over-year as provided during the fourth quarter earnings call on February 22.

A soft economy, including high unemployment among office workers, has taken its toll on Office Depot. Meanwhile, narrowing margins seem to be a problem for the industry as a whole. Rising costs coupled with increased promotional campaigns are weighing heavily on the bottom line of several office supply retailers.

The company is containing costs, closing underperforming stores, reducing exposure to higher dollar-value inventory items, shuttering non-critical distribution facilities and focusing on providing innovative products and services. Office Depot is reviewing capital-efficient opportunities to expand its reach in Eastern Europe and South America. The company believes that India and China will provide significant growth opportunities going forward.

Recently, the company announced that it will put up the shutters on its nine existing stores in Canada on June 11. However, it will continue to provide services to its customers through its Canadian website.

The company's stock currently trades at a forward P/E (fye Dec 25, 2012) of 25.87. In terms of stock performance, ODP shares have lost nearly 52 percent over the past year.

Full Disclosure: None.
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